Monday, December 7, 2009

A Better Name: The Useless Tax

Apparently the California state legislature is indulging in some gold-seeking fantasy — call it Treasure of the Sierra Nevada — that untold millions of dollars being siphoned out of state coffers from scofflaw business owners like me and the out-of-state companies I patronize. The cry has gone up: There's gold in them thar tills.

As you may know, the state of California seems to be in a perpetual level of fiscal purgatory when it comes to its state budget. The state government has either issued IOUs or shut down or both several times in the last few years when it ran out of money. The reasons for this are up for debate, ranging from the long-term effects of Proposition 13 hacking property taxes (for both residential and commercial real estate) to the short-term thinking of politicians who never met a spending proposal they didn't like.

In this latest development, I received a letter from the California State Board of Equalization the other day. These are the folks to whom California residents pay their taxes. It informed me that, as a business owner in California (as a freelancer, I am essentially a sole proprietor), I was required to pay a "use tax" on all merchandise purchased via online or mail-order methods that I use for my business. It's essentially a sales tax levied even though the purchase was not made in California. Consider this scenario: if you go down to the mall and buy a DVD, you're charged sales tax, which goes to the state. If you order it through, you avoid the sales tax. The state government is beginning to get cranky about missing out on that money.

Interestingly, this is not a new tax. It's just being newly enforced because of California’s budget difficulties. Don’t get me started on politicians who enact laws they can't enforce.

Here's a happy thought for the future: the law doesn't just apply to businesses. Consumers purchasing items by mail order or online are supposed to pay taxes on such merchandise as well. Although the whole idea of taxing online sales raises the hackles in Silicon Valley, I'm reasonably confident the government will be targeting consumers next.

But the SBOE is starting with businesses. The letter I received asked me to register my intent to pay the use tax for the tax years 2006, 2007, and 2008 ("asked" is probably too mild a word). As a good citizen who likes driving on roads and having water pumped to my house, I did so.

Then I went up into the attic where my tax records are stored to tally up all the items I'd purchased for my business in the last three years so that I could make restitution to the state I love so dearly.

I found three items: laptop batteries, a digital phone recorder, and an engineering technology book I'd gotten from

Upon checking the receipts, I discovered that the company that sold me the batteries was based in Anaheim, so they'd already charged me California sales tax. The company that sold me the recorder was based in New Jersey, but because I was in California, it, too, had already collected the appropriate sales tax.

That leaves the engineering technology book, which cost $64.95. The tax rate in my county at the time of the purchase was 8.25%, meaning that the SBOE has embarked on this massive effort to recoup dollars and has managed to extract from this sole proprietor the grand total of … $5.36.

Of course, there may also be a penalty.

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